<nettime> Guardian: Looking back on the crash

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http://www.guardian.co.uk/online/story/0,3605,1433697,00.html

   Looking back on the crash

   On the fifth anniversary of the dotcom collapse, Chris Alden reflects
   on the hysteria and hubris that fuelled the boom

   Thursday March 10, 2005

   [34]The Guardian

   As celebrations go, it will be a muted one. But at 9pm this evening,
   anyone who tried and failed to make a fortune in the dotcom boom can
   be forgiven for sitting back, pouring themselves a glass of millennium
   bubbly, and thinking about what might have been.

   It will mark exactly five years since the Nasdaq, the US technology
   index, closed at a dizzying peak of 5048.62 - more than double its
   value just 14 months before. That Friday night, the young investors
   who had won millions in funding at networking events such as First
   Tuesday - and who were pumping much of that cash into marketing their
   patches of dotcom turf - probably felt little reason to worry. The net
   was the future, and they were part of it.

   It was all downhill from there. In the next day of trading, the Nasdaq
   lost 2.8% of its value. The day after - as [35]Lastminute.com floated
   on the London stock exchange, briefly achieving a market
   capitalisation of £800m - it fell 4%. By October 2002, it had plunged
   to 1114.11, a total loss of 78% against its peak.

   Along the way, companies such as Boo.com, Clickmango.com,
   Ready2Shop.com, Pets.com, Toysmart.com and many more went from being
   leaders of a revolution to tombstones in dotcom graveyards chronicled
   by the likes of Fucked Company - and the business pages of a delighted
   tabloid press.

   Survivors, of which Lastminute was one, were left battling to turn a
   profit in a market where business to consumer websites were as
   unfashionable as a fur coat in summer.

   Rob Hersov, then boss of Sportal - now vice-chairman of executive
   plane company NetJets - says the collapse was precipitated by nothing
   less than "mass market hysteria".

   "Those were incredibly heady days," he says. "Fun - absolutely. We
   thought we were making a difference. We thought we were getting out
   there, shaking things up, doing something no one had done before. We
   really were pioneers - buccaneers."

   Fellow South African Brent Hoberman, who co-founded Lastminute.com
   with Martha Lane Fox, and who remains chief executive, describes the
   atmosphere as frenetic. "There was a community of young people
   starting businesses, everybody looking for deals - a frenetic amount
   of deal-making and deal activity.

   "It was a time when outsiders from an industry were often more
   effective than insiders. Not knowing everything about an industry made
   you able to challenge the rules. New players see the effects of a
   disruptive technology more easily than a player who is already in the
   market."

   Toby Rowland was another 20-something caught in the rush. With partner
   Richard Norton, he raised £3m in his first funding round for
   alternative health website Clickmango - which launched in 2000 with
   ads fronted by Joanna Lumley - but had to close in the wake of the
   crash.

   Even the name of the company - because "older women love mangos", says
   Rowland, with a grin - was a measure of the exuberance of the times.

   "When 1999 came along it was a wonderful time when everything seemed
   possible - and you couldn't not do something," he says.

   "The intoxicating smell in the air was that of dotcom money being made
   left and right," agrees Tristan Louis, a developer who worked at
   Boo.com's London office. "Those of us that had been in the business
   for a while were worried about it being a bubble. But we worried for
   so long - in internet time - that by 1999, the worry turned to concern
   that maybe we were among the ones who didn't "get it", who didn't
   really understand the power of the net.

   "It felt a little like our wildest expectations about the
   transformational power of the net were being exceeded at a faster rate
   than we thought."

   As spring 2000 came, many had a sense of impending trouble. Sportal's
   Hersov said he knew by then that the boom was too good to be true -
   but he had already become involved in a costly race to make a profit
   before the market fell away.

   His site owned potentially valuable wireless and broadband rights, in
   perpetuity, to a list of major European football clubs - Real Madrid,
   AC Milan, Juventus, Bayern Munich and Paris St Germain - and he
   believes that if he had sat on them and done nothing, Sportal would
   now be a billion-dollar company. In the end, he ended up selling the
   websites for £1 in November 2001.

   "Everyone felt like they could get in and out in time," he says. "And
   I reckon most rational people knew the market would come off. People
   were saying: 'it's going to come off 10%, 15%' - that was the rational
   thing to think, not 50%. No one expected the complete meltdown; they
   expected the market to start dropping, but not to melt."

   Julie Meyer, co-founder of First Tuesday, puts it this way: "It's not
   that I didn't think it was coming. It was that you never see the shape
   of things until it happens."

   The first crack was the collapse of Boo.com. The e-clothing company,
   founded by Swedes Kajsa Leander and Ernst Malmsten, had launched in
   the summer of 1999 with more than £70m of startup capital, the most
   ever raised by a dotcom.

   Employing more than 400 people in London, New York and four European
   cities, it tried to sell designer clothes in 18 countries across the
   world - with the help of Ms Boo, an irritating avatar who needed the
   Macromedia Flash plug-in to work.

   As a measure of just how hubristic that was, Freeserve - then
   Britain's top ISP, now owned by Wanadoo - had only just started
   offering unmetered dial-up access, which meant that few customers who
   looked at the site could get as far as buying clothes.

   And it didn't work on an Apple Mac. Throw in the tales of Concorde
   flights and high living in five-star hotels, and you had the
   archetypal dotbomb. By the time it went bust in May 2000, Boo.com had
   run up more than £10m in debt.

   The trouble was that Boo led to comparisons that were harmful to other
   businesses - particularly Lastminute.com.

   "It was a bad thing for us," says Hoberman. "The parallels were very
   frustrating, and they were all the more easy to make because it was a
   man and a woman who were young, and both women were very attractive.
   What I said to everyone at the time was that that was about the only
   parallel."

   But Boo's demise did focus attention on real problems that affected
   dotcoms: the high cost of technology, the high cost of marketing, and
   the fact that customers were not yet online in big enough numbers to
   drive e-commerce.

   "The correction had to happen," says Hersov. "There was too much money
   chasing too many ideas, no viable revenue stream in most cases,
   technology that just wasn't ready for what everyone wanted it to do -
   the whole thing got ahead of itself."

   Mike Antliff of Digital Animation Group - in those days makers of
   virtual newsreader Ananova, now purveyors of animated characters known
   as WeeMes to mobile phones - agrees. "The market wasn't mature enough.
   We were technology-driven. We're much more market-driven now."

   Those who got their timing right, of course, made cash. Hersov may
   have lost out with Sportal, but the internet incubator Antfactory,
   which he co-founded, was sold in 2002 for £77m. Peter Wilkinson, who
   reputedly sketched out the idea for Freeserve on a napkin, sold his
   Sports Internet business to BSkyB for more than £300m. Lastminute.com
   turned its first quarterly profit in 2002, although it went back into
   the red after making a series of acquisitions in a bid to increase its
   scale.

   And in what now seems an extraordinary piece of deal-making, the
   centrepiece of the boom - First Tuesday - was sold in late 2000 to an
   Israeli internet company, Yazam, for £26m.

   Meyer, who now works as a venture capitalist for Ariadne Capital in
   London, says: "The art is to find a buyer that really wants what you
   have."

   According to Hersov, though, Europeans were at a disadvantage. "You
   needed to be at the epicentre to make money," he says. "You needed to
   be based in Seattle or Silicon Valley, and you needed to have launched
   something in 1997. For anyone else, and that applies to most
   Europeans, who launched two years after that, it was very difficult to
   get a technical platform, team in place, revenue stream, path to
   profitability, go public, cash out - the time just got shorter and
   shorter the further you got from the epicentre."

   Some, of course, are still looking forward. Lastminute.com, like many
   companies, has bold plans to exploit mobile devices by using location
   based maps, offering theatre and restaurant deals.

   Rowland is philosophical about the failure of Clickmango, but now runs
   [36]Midasplayer.com, a skill gaming website he describes as "to
   gambling as Country Life girls in pearls are to pornography". Last
   month, he says, the company turned its first profit.

   He misses the sense of community of the early dotcom days - now, he
   says, there are "a lot of lone wolves out there, doing their thing".

   "We need a First Tuesday," he adds. "Someone's going to have a First
   Tuesday and there's going to be like 500 people there. It can happen -
   I believe it.

   "I wish Julie (Meyer) would do it. Just for fun."
   Related articles

   10.03.2005: [37]Dotbomb survivors face new frenzies

   10.03.2005: [38]The gain then the pain: Super Bowl to e-orgasm
     _________________________________________________________________
References

  34. http://www.guardian.co.uk/
  35. http://www.Lastminute.com/
  36. http://www.Midasplayer.com/
  37. http://www.guardian.co.uk/online/news/0,12597,1434251,00.html
  38. http://www.guardian.co.uk/online/news/0,12597,1434263,00.html
  

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